FedEx settles whistle-blower lawsuit for $8 million

FedEx will pay $8 million to settle a lawsuit filed by a former Crofton shipping center employee accusing the company of defrauding the federal government.

Mary Garofolo, who worked for FedEx for 23 years before retiring in May 2007, filed suit against the company under the federal whistle-blower statute after complaints to her supervisors about the scheme were ignored, she said. Her suit was filed under seal to enable government investigators to look into her allegations, which centered on a fraudulent billing scheme involving thousands of late deliveries that FedEx falsely blamed on 9/11-related security delays.

Garofolo, a FedEx driver in Virginia before moving in 1992 to the company's shipping center in Crofton in Anne Arundel County, stands to receive $1.4 million from the settlement. "I absolutely feel good about it," she said Wednesday by telephone, adding that she hoped the company would stop trying to "make money off the 9/11 tragedy."

FedEx spokesman Maury Lane told The Wall Street Journal that the company denied any wrongdoing but settled the case "to avoid a costly, protracted legal battle" with the government.

Federal investigators found that, after the 9/11 attacks, FedEx began falsely blaming late deliveries on nonexistent "security delays" at government agencies and by claiming that no one was available to accept deliveries. The delays enabled FedEx to avoid honoring its money-back guarantee for late deliveries, according to unsealed court documents provided by Shanlon Wu, one of the Washington attorneys who represented Garofolo.

Although delays did exist after the 9/11 attacks, FedEx continued to exploit the security issue for years and built the fictitious delays into their business model, the documents say. The fraud became so rampant that drivers would code entire truckloads of deliveries as "security delayed" even before the trucks had left FedEx shipping stations.

Wu said that monetary awards given to whistle-blowers under the False Claims Act vary according to the employees' value to the case, and that the average payout represents 15 percent of the settlement. "In this case, Mary Garofolo will receive 18 percent of the award," Wu wrote, "which means that 82 percent of the recovery goes back to the U.S. Treasury."